Question

Which of the following is true at break even point?

• A. Sales revenue = variable cost
• B. Profit = Fixed cost + Variable cost.
• C. Sales revenue = Total cost -Variable cost
• D. Contribution = Fixed cost

Answer 1

The correct option is D Contribution = Fixed cost

Break Even Point is that level of sales where there is no profit no loss to the organization. That means at this level fixed cost is fully recovered.

Example: Selling Price Rs.10 P/U, Variable Cost Rs.4 P/U, Fixed Cost Rs.3000

Selling Price Rs. 10

Less: Variable Cost Rs. 4

Contribution Per Unit Rs.6

BEP= Fixed Cost/Contribution

= Rs. 3000/Rs.6

= 500 units

Sales @ Rs.10 for 500 Units Rs.5000

Less: Variable Cost @Rs.4 Per Units Rs.2000

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Contribution Rs.3000

Fixed Cost Rs.3000

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Profit/Loss Rs.0000

Therefore , contribution= Fixed Cost